Memorandum by the Association of Transport
Co-ordinating Officers (Bus 31)

THE BUS INDUSTRY

1. INTRODUCTION

1.1 The Association of Transport Co-ordinating
Officers (ATCO) represents local authority officers who are responsible
for securing passenger transport provision on behalf of Councils
and Passenger Transport Executives throughout the United Kingdom.
Formed in 1974, ATCO now has around 450 members whose membership
is individual, as opposed to on behalf of their employing authorities,
allowing the Association to make impartial professional comment
on passenger transport issues.

1.2 ATCO is pleased to make the following
submission which is arranged so as to cover the five issues which
the Sub-Committee wishes to consider.

2.1 Work being carried out nationally on
behalf of the Commission for Integrated Transport has confirmed
that it is appropriate for subsidies to be provided to the bus
industry to assist with meeting the twin objectives of reducing
social exclusion and encouraging modal shift away from the private
car towards public transport. Such subsidies are currently provided
in the following ways:

 fuel duty rebate based on mileage
operated

 local authority subsidy paid to operators
as a result of a contract being awarded

 payments made to operators (by district,
not county councils) as a result of accepting concessionary fare
passes for pensioners and disabled people.

2.2 In addition, operators receive indirect
benefits from capital expenditure on highway related schemes including
bus priorities and receive substantial funding as a result of
contracts or the purchase of season tickets for scholars entitled
to free home to school transport.

2.3 Although operators receive substantial
amounts of funding through the public purse, the outcome is still
a situation where there is low customer satisfaction, where services
change at short notice and where there is often a requirement
for urgent injections of additional local authority funding to
maintain services, support that has not been budgeted for. The
last two years have witnessed a change in strategy by the major
bus groups in terms of the service provision with a much greater
emphasis now being placed on concentrating resources on what they
commercially assess as their core markets at the expense of other
routes and services.

2.4 In October last year, ATCO undertook
its fourth annual Price, Expenditure and Competition survey which
looks at trends over the last 12 months, based on returns from
the majority of authorities around the country. This survey is
attached as Appendix 1. The survey shows that in the last year
the average cost of retendered bus contracts was 21 per cent higher
than the contracts that were replaced, the highest ever in the
four years to date. In addition, authorities have had to find
almost 10 million pounds to support newly withdrawn commercial
services, 75 per cent more than last year. Therefore authorities
are needing to find a budget increase of 10.8 per cent if they
are to maintain existing service levels during the current financial
year and in fact, since that sort of increase often isn't practical,
the survey showed that 29 per cent of authorities were planning
to make cuts in supported services by the end of 2001-02. The
trends are very similar for school transport where, of course,
authorities have no alternative but to find the money to maintain
services for entitled children.

2.5 The effect of all this in practical
terms, is that almost 1.5 million commercial bus journeys will
not run next year because they have been deregistered and authorities
do not have the funds to replace them, and a further 0.5 million
supported journeys will disappear because of insufficient funds
(in both cases about 50 per cent worse than last year) and removes
5,000 journeys per day from the bus network. ATCO has calculated
that this rate of erosion would completely negate the positive
effect of the Rural Bus Subsidy Grant over the current three year
period to 2004 and the total number of bus journeys will have
declined during this period. As a supplement to the Price, Expenditure
and Competition survey, ATCO gathered first-hand evidence of service
withdrawals from authorities.

2.6 This situation points to the need for
direct help from government in recognition of this issue through
the provision of higher long-term revenue funding for local authorities.
Such funding needs to reflect the fact that there is every reason
to suppose that the trends will continue as commercial operators
wrestle with higher costs and concentrate on core networks. It
has to be long-term because there needs to be the confidence to
plan for the future including longer-term contracts which encourage
investment. Finally, the funding needs to be revenue based, because
whereas capital funding has increased, the reverse is true for
revenue leaving a real danger of having an improved infrastructure
with the same or even a poorer level of service.

2.7 Overall, this is the most pressing problem
for local authorities at the present time. If authorities' local
transport plans are to be an effective tool for delivering the
Government's strategic transport objectives, they must be accompanied
by an integrated funding strategy that recognises the volatility
of the bus industry and the increasing cost of providing the level
and quality of service that the public expects.

2.8 There has been an increasing emphasis
on challenge funding and the resources this requires in terms
of bidding. This is far from ideal. Although additional funding
for public transport through the various challenge funding processes
has been welcomed and some authorities have benefited considerably,
the amount of time spent on making the bids is significant. Staff
resources are scarce and there is concern about the amount of
time being spent on abortive bids. Given that only one fifth of
the bids for urban bus challenge funding were successful, questions
should be asked as to whether this type of competition provides
an effective use of staff resources. In addition, the insistence
on "additionality" means that the winning authorities
often have serious deficiencies in their core network, and yet
have new services in other areas. Finally, the challenge funding
is time-limited, which, given that such projects by their very
nature are unlikely to become commercial is a further long-term
pressure on budgets.

2.9 In summary, rural and urban areas would
benefit more from authorities having sufficient "core"
funding from Central Government to allow the creation and maintenance
of a substantial network. The total required would be a fraction
of what has/will be spent on railways and yet would have a far
greater impact on modal shift.

3.1 There is a need to re-examine the frameworks
within which local authorities can effectively engage with the
commercial sector.

3.2 Local authorities are in the process
of preparing bus strategies which will set out the objectives
of the network in terms of increasing social inclusion and achieving
modal shift. QPs and QCs were established through the Transport
Act 2000 to assist authorities with the implementation of their
strategies. It is important to recognise that these two concepts
are means to achieve objectives rather than objectives in themselves
and hence should be seen as two amongst other potential complementary
procurement strategies.

3.3 In some markets, particularly inter-urban
and large urban, the bus strategy objectives will probably be
met by an operation that is wholly or mostly commercial. Here,
QPs will work on the best routes and will add value to the commercial
network. This is because the partners share the common objective
of increasing the number of people travelling by bus. This is
good for operators as it should increase their income and good
for local authorities as it may lead to a reduction in congestion
and possibly can reduce social exclusion. In such a situation,
the operators will be keen to strengthen the network further by
increasing frequencies to a level necessary to achieve modal shift
and make that network a priority for the provision of new fully
accessible buses. Where this happens, local authorities may be
welling to re-allocate scarce road space in favour of the bus
and impose potentially unpopular traffic restraint measures to
further encourage modal shift and a growth in bus use. This creates
a fertile ground for a QP. Many new schemes are being launched
in this way and some are producing impressive growth in usage
through increases in service levels, attractive fares policies,
strong marketing backed up by bus priority schemes, better waiting
facilities and real-time information.

3.4 At the other extreme, in deep rural
areas, none of the network is commercial and it is possible to
plan and tender a wholly contracted arrangement in line with the
bus strategy objectives. Here there are a range of challenge competitions,
partnerships and grant schemes that can help us to try new approaches
to local transport, subject to the funding drawbacks mentioned
in the previous section. These features give a good chance of
progress to be made in a co-ordinated way.

3.5 But there is a real problem in the area
in between these two extremes. In the middle are the routes that
cannot support the QP approach in its true sense, but which do
not fall into the rural category. Away from the star performers,
there is a second division of services where any investment by
the local authority is in danger of being matched by little more
than vehicle investment, most of which was probably already due,
there being no corresponding improvement in service levels, fares
or marketing. Here, the local authority will find it more difficult
to justify the provision of bus priorities and will be less able
to introduce traffic restraint measures. Statutory QPs could be
applicable here, of course, but these exclude service levels and
fares, the very elements at issue, so there is no rush to reach
such agreements.

3.6 Large parts of existing networks exhibit
the features of this middle ground. Typically there will be just
a few marginally commercial routes, often dependent on school
movements, with the majority of services being wholly or partially
supported by the local authority. This issue can be referred to
as the "middle-sized town" problem but that is a fairly
loose definition as many diverse areas demonstrate service patterns
of this nature including suburban areas and rural inter-urban
corridors. What they have in common is that these are the areas
that operators have been withdrawing from in the past year or
so as they focus on core networks.

3.7 A different approach is needed here
to ensure investment (particularly in vehicles) and to maintain
a stable network and one where there is a comprehensive service
where modal shift is the objective. This is a situation where
a QC for the provision for the whole network of services within
a defined area might be a useful way ahead. Such a QC would specify
a minimum standard with the operator/partner being given every
encouragement to beat the standard. The operator would normally
take the revenue risk and therefore have the incentive to grow
the market by increasing ridership.

3.8 A QC approach has to be a real option,
but any application is going to take two years to achieve, will
blight the network in the process, will lead to difficult relationships
with operators and through the application of a test of this being
"the only available way" gives the impression to authorities
that there is a presumption against government approval anyway.
There is also the fundamental point that in many areas there is
a lack of operators who would potentially be in a position to
bid for a QC, often only one, so the authority risks being faced
with a monopolistic price for its specification.

3.9 There might, therefore, be case for
looking for a third option to suit the middle ground that represents
a "halfway house" between QPs and QCs. The basis for
this thought is that at the margins, the commercial operators
have little to lose and much to gain if they work closely with
the local authority. By focusing in on core routes for perfectly
sound business reasons they have effectively removed the grounds
that they had for wanting to maintain the status quo in those
areas from which they have retreated. They normally still have
a presence but it is often half-hearted, gets in the way of planning
the network, isn't being marketed and the routes concerned will
probably be the next to be withdrawn anyway. There is almost only
one operator left running commercial services, so there is little
or no competition, itself the main reason for having the current
system. It may be possible, therefore, to recognise that provided
that the operator still operates a few core commercial routes
and is committed to the area in the long term then a positive
way ahead for both parties (and the user) would be to work together
to achieve network benefits, producing a Quality Network (QN).
In particular, the operator has little to lose by participating
and may indeed gain in terms of increased business potential.

3.10 In such an environment the local authority
and incumbent commercial bus operator(s) would work together to
facilitate a clean-sheet review of the operation and funding of
transport services within the QN concerned, including local bus
services, school transport and social services movements, with
the aim of identifying and implementing enhancements to the network,
both in terms of efficiency of supply of transport and improved
facilities to meet demand. Such work would fit well with the principles
enshrined in the current best value regime as applied to local
government.

3.11 The bus operators would include their
marginally commercial services in the analysis, supplying data
for that purpose. Any strongly commercial services where real
progress might be possible through the QP approach would be exempt,
on the presumption that the operator would agree in principle
to take such a QP forward, although (as always) the local authority
might make suggestions about these services which would be pursued
at the operators discretion.

3.12 The "clean sheet" review
would specify a minimum service requirement for each corridor
consistent with the authority's bus strategy and identify opportunities
for integration of public, education and social services transport,
particularly where use of accessible vehicles can be maximised,
thereby removing wasteful operation arising from duplication or
lack of demand. It would aim to expand the network to better meet
needs, possibly including the introduction of flexible "demand
responsive" services, normally using smaller accessible vehicles.
It would consider the potential for an attractive fares policy
to improve affordability particularly for certain groups and for
the implementation of an effective marketing campaign designed
to create awareness and a positive perception of the QN.

3.13 The result would be a network that
better meets public needs, is more co-ordinated and efficient.
The revised network could then be implemented across the area
with the incumbent operator(s) having the first opportunity to
meet the specification (or exceed it) by adjusting commercial
services. The likely scenario here is that whereas any strongly
commercial services might be adjusted by the operator for business
reasons, more marginal commercial services would be amended with
support from the local authority to reflect the overall aims of
package. The financial regime in the latter case would need to
be totally transparent and the local authority would need to demonstrate
why it was sensible to proceed in this way rather than seek competitive
tenders. Any agreement would be very likely to exceed the current
Transport Act 1985 de-minimis limits. The whole package would
then be marketed as an entity and promoted on a joint basis.

3.14 This approach would stand a chance
of growing ridership and improving the viability of the marginally
commercial services, bringing benefits for both the local authority
and the operator. It can be pursued within existing legislation
and regulations, but real progress in developing stronger networks
would be much enhanced by experimenting with a different approach
on a number of issues, giving more freedom and flexibility within
designated QN areas. These issues are discussed in more detail
in Appendix 3.

3.15 Of the issues listed in Appendix 3
the most important is that of the de-minimis limits. The best
value regime provides a mechanism through which local authorities
are more accountable for their decisions and the Transport Act
2000 provides for tender awards to be made on the basis of best
value principles. In this climate, suspension of de-minimis limits
within a QN approach would seem entirely legitimate.

3.16 It may be desirable to try to test
most or all of these ideas in a few trial areas where they could
be implemented as a package to see if they make a difference to
the usage and viability of services. This would be similar to
the trail areas for deregulation in Hereford and Norfolk in the
early 1980s, although the mechanism for creating such areas might
need to be different. In seeking such a trial area, local authorities
would need to show that the operators of commercial services were
signed up to the QN approach and were active participants in it.
Other operators could apply to register commercial services in
the area, although by the very nature of the area this may be
unlikely, but to have their registration accepted by the Traffic
Commissioners they would have to show that they were willing to
operate within the standards applying in the trial area. For example,
this means that they would need to match the vehicle standards
of the existing QN operators, comply with change dates/notice
periods, co-ordinate their journey times.

3.17 These ideas need further work. ATCO
will be commissioning research in the next few months, which will
look at some potential towns where this approach might have benefits.
ATCO is also working with the LGA in taking forward the Pathfinder
Council project, which is also considering these issues.

4. THE IMPORTANCEOF BUS
PRIORITY MEASURESAND THEIR
ENFORCEMENT

4.1 Where the objective of a transport network
in an area is to achieve modal shift, it is likely that this objective
has arisen because of existing or future congestion. Consequently,
it is most likely that bus priority measures will be part of an
overall strategy to deliver a high quality alternative to the
private car. Bus priority measures can take many formsbus
lanes, bus only streets or turns, selective vehicle detection
at traffic signals, for example. The most appropriate form of
bus priority will depend on local circumstances. Their primary
objective is to improve the reliability and regularity of bus
services so that people can rely on them when choosing to use
buses rather than cars. A secondary objective may be to reduce
journey times. Whatever the objective, an appropriate bus priority
scheme can help achieve these objectives along with other measures
to reduce boarding times, for example.

4.2 To be effective, bus priority schemes
need to be enforced. That applies equally to other traffic management
measures to ensure effective use of road space, including the
monitoring of on-street car parking. Evidence suggests that this
can be better achieved where the local authority has taken on
board powers to decriminalise parking through setting up a special
parking area. The income from this can be used to fund enforcement
and also other transport improvements. It would be logical for
local authorities to extend these powers to include the enforcement
of bus priority schemes.

5. REGULATIONOFTHE
BUS INDUSTRY

5.1 The provision of bus services is still
considered as an essential public service by users and non-users
alike. Since 1986, governments have taken the view that this can
be best achieved by companies approaching the task from a commercial
perspective. Regulations relating to the extent of the provision
of services and fares were swept away and replaced by "safety
net" regulations relating to notice given on how and when
services could be changed. Local authorities were given powers
to fill gaps in service by seeking tenders for those considered
as socially necessary. Regulations relating to safety (quality
licensing) were largely unchanged and have proved less controversial.

5.2 It is still difficult for many people
to accept that bus companies do not have an obligation to provide
a full range of services in an area and have the freedom to "cherry
pick" good routes and times of day rather than have to provide
a comprehensive service. This is compounded by the fact that increasingly
in most areas there exists a monopoly operator and no competition.
Unlike many other service industries, customers often do not have
the choice as to the company that can best meet their needs. Barriers
to entry into a new area are high as the incumbent operator is
able to adapt its services quickly and easily to see off a potential
competitor. This state of affairs can also be very frustrating
for a local authority as it is often unable to respond effectively
to the legitimate concerns of its citizens about the quality of
what they perceive to be a public service.

5.3 Where this is of concern to the local
authority and there is a belief that the existing mix of commercial
and contracted services do not meet the needs of an area, the
local authority could have greater ability to influence the situation
through securing a QC for that area. The merits of this approach
and of the alternative, a QN, are addressed in the previous section.

5.4 In rural areas the potential for taxis
and hire cars to provide bus services is often perceived to have
been neglected. This has been largely due to the fact that most
taxi operators tend to be based in towns and confine themselves
to the work which rewards them bestplying for hire at ranks
and on the street. Private hire car operators, on the other hand,
find it easier to obtain a private hire car licence and are often
more willing to provide services in rural areas, albeit only as
shared hire cars. Under the Transport Act 1985, only taxi operators
can apply for a special restricted PSV operators' licence which
enable them to become taxi buses. Private hire cars can only do
this by obtaining a restricted PSV operators' licence. Neither
of these mechanisms has appeared attractive to operators, hence
a review of the regulations governing private hire car operations
might be worthwhile to enable new operators with vehicles with
less than nine passenger seats to enter the market and provide
taxi bus type services.

5.5 An important issue is the lack of co-ordination
between services where there are two or more dominant operators.
Since the Competition Act 1998 came into force and the Office
of Fair Trading has focused its attention on the bus industry,
operators have been less unwilling to engage in dialogue regarding
the future development of services. At one level, this has made
it difficult to introduce QPs as operators will not commit themselves
to future service levels along given corridors or the provision
of new buses. At another level, service changes are no longer
co-ordinated with the result that one corridor may have a large
number of buses per hour while another has had its service withdrawn
completely. Changes to fares are also no longer co-ordinated with
the effect of fares on one operator's services being different
from those on another for the same journey. The outcome is lower
customer satisfaction as bus users cannot understand why these
practices exist and why the network cannot be co-ordinated for
the benefit of users.

5.6 Over the past few years, clarification
of the legal distinctions between services which can be operated
under UK domestic drivers' hours regulations and those which fall
within scope of EC regulations has resulted in the loss of a number
of direct bus links between major centres that are more than 50kms
apart. The additional cost burden of adherence to the EC regulations
on longer routes is a deterrent to the development of sub-regional
and regional services; bus operators are often reluctant to mix
work that is in-scope and out of scope of EC regulations and the
potential for local authorities to secure such services has therefore
diminished. The resultant requirement for passengers to change
buses part way through a journey (simply because the needs of
the route may be 60km apart) is an obvious deterrent to the achievement
of passenger growth. In a wider context, there is little doubt
that the imposition of EC regulations on local bus service operations
would lead to significant network reductions to meet the need
for (or cost of) the additional drivers that would otherwise have
to be recruited.

6. THE CONTRIBUTIONOF BUS
SERVICESTO
REDUCING SOCIAL
EXCLUSION

6.1 Bus services are a means to an end.
They are a means of enabling people to gain access to work, shops,
education establishments, leisure facilities, medical facilities
and friends. In fact for many people they are essential for maintaining
a fulfilling life. The role of the bus in providing a link can
be made in other ways-by other types of transport service, by
bringing the service to the person eg home deliveries or electronically.
But discussions with groups of people in villages highlight the
importance to their quality of life in having the ability to leave
their village or home environment from time to time and to travel
elsewhere. It is very difficult to place a value on this quality
of life issue.

6.2 The number of people dependent upon
bus services has declined as car ownership has increased but hey
have often become more difficult to serve as the facilities people
need to reach have centralised and often moved to locations easily
accessible by car but remote from traditional bus routes.

6.3 It is important to recognise that personal
poverty does not necessarily mean transport poverty. Many towns
and cities have several large local authority housing estates
on the periphery of the urban development. Often these will have
high levels of deprivation and low levels of car ownership. For
those very reasons they have the most frequent bus services, the
one exception often being that as evening networks have contracted
those on the periphery have been excluded to such an extent that
they will no longer travel as alternative services are some distance
away leading to fear of crime issues or they will use taxis which
are more expensive and hence will only be affordable on a less
frequent basis.

6.4 The social deprivation often occurs
in middle class areas, where most households have several cars,
but where there are also large numbers of (typically) elderly
people who do not drive. They are not necessarily short of money,
but they are short of bus services. The OFT rules on reciprocal
ticket recognition most frequently hurt those on reduced incomes,
for whom many journeys require the use of more than one bus.

6.5 Similarly, social exclusion has often
been seen as a rural problem. But it is now becoming increasingly
a medium sized town problem as towns of 25,000-50,000 have often
lost facilities eg hospitals or their traditional town centres
have suffered decline as retail, leisure and office facilities
have sought to relocate on edge of town sites.

7. CONCLUSIONS

7.1 The Government's 10-Year Plan for transport
set a target for a 10 per cent increase in the number of people
travelling by bus. Whilst this should be readily achievable through
organic and demographic growth, recent trends in the bus industry
have pointed to a progressive decline in the level of service
being provided in all but the largest towns and cities. This in
turn is leading to a decline in the number of passenger journeys
on significant parts of the country's bus network and increasing
the pressures on local authorities to intervene with additional
revenue support to maintain service levels.

7.2 For local authorities the problems are
evident. Rapidly increasing tender prices for both local bus services
and home-to-school transport are limiting local authorities' ability
to maintain existing supported services. As further commercial
bus services are de-registered, authorities are continually having
to re-evaluate the sustainability of their supported services
in an attempt to prioritise the routes which are most vital to
the achievement of their strategies. The current regulatory framework
imposes constraints and a lack of flexibility on the local authority's
ability to obtain best value from its revenue budget and in the
absence of additional funding and greater flexibility, the spiral
of decline looks set to continue.

7.3 The financial framework, in particular,
needs to be overhauled, to bring the mechanism for the disbursement
of revenue funding to local authorities broadly into line with
the current method of allocating capital funds. The Local Transport
Plan should remain the method by which capital bids are evaluated,
and revenue grants need to be determined in a similar way, using
the local authority's bus strategy as the framework within which
revenue funding is allocated by government. The bus strategy therefore
assumes a higher profile as the bidding mechanism by which the
local authority secures the necessary revenue stream from which
it can sustain and develop public transport in its area.

In the last year the average cost of retendered
public bus contracts was 20.9 per cent higher than the contracts
they replaced.

Authorities will need a budget increase of 10.8
per cent from April 2002 to retain existing public bus service
levels.

Around 29 per cent of local authorities will
have made cuts to supported bus services by the end of the financial
year to stay within budget.

The average cost of replacing expired school
bus contracts in the last year was 16 per cent higher than the
cost of the contracts they replaced, up from the 11 per cent average
reported last year.

Authorities will need an 8.7 per cent increase
in budget in April 2002 to retain existing levels of school bus
services.

There has been a continuing slight decrease
in the overall average number of bids for tenders for bus contracts.

One quarter of local bus tenders only received
one bid and 3 per cent received no bidders at all.

The amount which authorities have spent on replacing
deregistered commercial bus services in the last year is up by
75 per cent compared with last year to over £9.4 million.

The cost of replacing early terminated public
and school bus contracts has added £5.5 million to local
authority costs, a 64 per cent increase over last year.

Almost 1.5 million commercial bus journeys (almost
half as many again as were reported in 2000) will not run in the
next year because they were deregistered and authorities did not
have the funds to replace them.

Local authorities withdrew half a million supported
bus journeys per annum in the last year because of insufficient
funds, an increase of 50 per cent compared with last year.